Was for a trading week! Of the Euro hit a new 20-year low on Friday and the yield on ten-year Bunds tested the 2 percent mark for the first time in nine years. The euro fell as low as $0.97, while the 10-year Bund yield settled at around 1.95 percent after rising to 2.01 percent at the start of trading.
The German stock index dax temporarily fell to its lowest level since November 2020 and was only listed at 12,206 points in the afternoon. Many commodity prices also went down: The price of copper, for example, which went by the nickname “Dr. Copper” is considered an indicator of the health of the global economy, fell a further 2.3 percent to $7,503 per ton. Brent oil from the North Sea fell by almost 2 percent to $88.83 per barrel. The price of gold fell to its lowest level since April 2020, at times an ounce (31.1 grams) cost only $1,641.
Rate hikes scare investors away
What's going on there? "The fact that at least Europe is entering a recession phase is now only doubted by very few," said analyst Jens Herdack from Weberbank. The rate hikes apparently frightened many investors, and there are now signs of a downturn that can hardly be overlooked. No fewer than 13 central banks around the world decided on their interest rate policy this week, many opting for a rather aggressive course of interest rate hikes. Not least America's Federal Reservewhich has announced that it will raise interest rates further into next year.
The economic pessimists recently saw themselves as confirmed by the German purchasing manager indices, according to which the German economy contracted surprisingly sharply in September. Business in the euro area was as bad as it was last more than a year and a half ago. "Obviously, the majority on the floor does not believe that the ECB can keep up with the fast tightening pace of the American central bank, the Fed," said portfolio manager Thomas Altmann from investment advisor QC Partners on the euro exchange rate losses. Another stress factor is the upcoming parliamentary elections in Italy. The right-wing electoral alliance, which leads in the polls, is less EU-friendly than previous governments. Investors should therefore be prepared for price fluctuations, especially in the case of Italian government bonds.
Inflation is likely to be in the double digits
Inflation figures for Germany and the euro area will be published next week. And at least Jörg Krämer, the chief economist at Commerzbank, expects inflation in Germany to have reached double digits as early as September - and in the euro area is only very slightly below that. There, too, it should soon be 10 percent, said Krämer. According to surveys, more and more citizens distrusted the ECB and also expected long-term inflation to be well above the promised 2 percent. "The ECB is beginning to react to these alarm signals," said the economist. The financial markets have raised their key interest rate expectations significantly and are now expecting an ECB interest rate of 3 percent for the middle of next year: "That is the main reason why the yields on Bunds have risen so sharply recently."
The euro, on the other hand, is depreciating against the dollar for two reasons, said Krämer. "First of all, the US central bank is likely to take even more decisive action against the high inflation than the ECB," says the economist: "In addition, the economic risks in the euro area are higher - because here in Germany, unlike in the United States, there is a risk of an energy crisis."